Local cocoa buying companies could collapse – GCCP warns

The Ghana Civil Society Cocoa Platform (GCCP) has issued a stern warning to government, noting a looming threat of collapsing local Licensed Buying Companies (LBCs) as the country approaches its 2024/2025 cocoa season.

In their reflections on the 2023/2024 cocoa season, GCCP emphasised that the demise of these local LBCs – particularly those lacking the financial backing of larger entities – could significantly destabilise the country’s downstream cocoa supply chain and bring dire consequences for smallholder farmers.

“We wish to draw government’s attention to the possibility of collapsing local licenced buying companies which might not have ‘big brothers’ to pre-finance their purchase.

“The collapse of these local LBCs would greatly destabilise the downstream cocoa supply chain and spell doom for ordinary cocoa farmers who depend on these buyers for their survival,” GCCP said in a statement.

According to the independent campaign and advocacy platform – comprising civil society actors in the cocoa sector including NGOs, farmer associations and community organisations – the 2023/2024 cocoa season has been one of the most challenging in recent history.

Production levels are expected to hover at just above 500,000 metric tonnes – the lowest in over two decades.

This decline, they noted, is reminiscent of the 2002/2003 season and a significant drop from the country’s peak production years.

The group attributed this drop to a combination of factors, including “low yields despite high international prices, resulting in low harvests leading to little or no increase in farmers earning; and high inflation, fast currency depreciation, high cost of inputs and increased cost of labour has further wiped away positive gains from the high global prices – thus entrenching poverty among cocoa farmers”.

They also listed “extreme weather conditions”, including prolonged rainfall in some regions and drought in others which led to widespread black pod disease devastating cocoa farms, especially in the Western-North Region that produces most of Ghana’s cocoa.

Furthermore, it mentioned that delays in disbursing the cocoa syndicated loan meant most LBCs, especially the local ones, could not raise capital to purchase cocoa, which led to frustration and disappointment among farmers who could not get money for their delivered beans.

“Farmers, in search of money and better prices, smuggled cocoa to neighbouring countries; leading to low volumes of cocoa beans at the Ghanaian ports. Government’s attempt to minimise the smuggling by reviewing farm-gate prices mid-season was too-little too-late for curbing the impact from smuggling.

“Illegal mining activities have severely damaged cocoa farmlands, threatening the lives and livelihoods of farmers and dependents. Unfortunately, no clear and pragmatic strategies have been proposed to tackle this problem that threatens the cocoa industry’s very survival.”

It also asserted that despite global cocoa prices hitting a record high of US$12,261 per tonne in April 2024, cocoa farmers have seen little benefit from these price surges.

Among others, they indicated their disapproval of the Ghana Cocoa Board’s (COCOBOD) marketing strategy, which focuses heavily on forward sales rather than spot sales; thereby limiting farmers’ ability to capitalise on favourable market conditions.

As the 2024/2025 cocoa season looms, they called for a substantial increase in the farm-gate price of cocoa. Based on current global market conditions and conservative estimates, GCCP said it expects a 65-70 percent hike in the farm-gate price, translating to a minimum of GH₵57,320 per tonne or GH₵3,583 per bag of cocoa beans – assuming an exchange rate of US$1:GH₵15.65.

It also urged government to institutionalise mid-term revisions of farmgate prices to account for currency volatility and minimise cross-border smuggling.

They however commended COCOBOD’s efforts to enhance cocoa production through various productivity enhancement programmes, but they cautioned against the pitfalls of politicisation and nepotism in their implementation.

The group also welcomed government’s move to reduce reliance on foreign financial instruments for cocoa purchases, advocating instead for cocoa traders and exporters to pre-finance purchases.